This continuation application focuses on how different time courses of acetylcholine (ACh) and GABA effects influence the functional dynamics of cortical structures. Preliminary data shows that presynaptic muscarinic and GABAb receptors selectively suppress potentials at excitatory cortical feedback connections, and that these effects have different time courses. ACh and GABA input from the medial septum are associated with theta rhythm oscillation in the hippocampal EEG. Network modeling shows that phasic changes in GABAb modulation of synaptic transmission during theta may enhance sequence storage in hippocampal region CA3. Modeling also shows that suppression of feedback from hippocampus to neocortex by high ACh levels during awake behavior may decrease interference during the encoding of new information in the hippocampus, whereas slow drops in ACh during quite waking and slow wave sleep may set dynamics for consolidation (transfer of information from hippocampus to neocortex). Models motivate testing of two physiological hypotheses: Hypothesis #1. Changes in GABA interneuron activity during theta rhythm oscillations may cause phasic changes in modulation of synaptic potentials. Tests of this hypothesis include measuring size of evoked potentials at different phases of the theta rhythm cycle, testing the time course of GABAb modulation in heterosynaptic depression and after brief applications of GABA, and testing enhancement of encoding by phasic modulation in simulations of hippocampal region CA3. Hypothesis #2. Changes in acetylcholine levels may cause slow state changes in modulation of synaptic feedback from hippocampus to entorhinal cortex. Test of this hypothesis include measuring size of EPSPs induced in entorhinal cortex by stimulation of region CA1 during theta and non-theta EEG states, testing the time course of muscarinic recrptor activation in brain slice preparation, and testing other modulatory effects of acetylcholine in cortical structures. ACh levels and GABAergic interneuron activity change dramatically during different stages of waking and sleep. ACh blockade can cause amnesia and hallucinations. Loss of GABA effects can result in seizures. Disorders of this modulation may contribute to memory deficits in Alzheimers disease and Lewy Body dementia, disorders of REM sleep in depression, and breakdown of slow wave sleep in developmental disorders such as Landau-Kleffner syndrome. Research could guide combined use of drugs influencing GABAb and ACh receptors.